LHF Productions, Inc. v. Boughton

ORDER ADOPTING IN PART AND REPORT AND RECOMMENDATION;
GRANTING IN PART AND DENYING IN PART MOTION FOR DEFAULT
JUDGMENT; AND CLOSING CASE [ECF NOS. 47, 55]

JENNIFER A. DORSEY UNITED STATES DISTRICT JUDGE.

This is
one of several essentially identical cases filed by plaintiff
LHF Productions, Inc., in which LHF sues many unidentified
Doe defendants-under a single filing fee-for separately
infringing its copyright in the film "London Has
Fallen" by using BitTorrent software. LHF's practice
in these cases is to move for expedited discovery to identify
the defendants, and then systematically dismiss the
defendants after failing to serve them or settling with
them.[1] Magistrate Judge Nancy Koppe recommends
that I sever and dismiss all claims against all defendants
other than defendant Derrick Boughton for improper joinder
and in the interests of judicial economy and case
management.[2] LHF objects to the recommendation, arguing
that the defendants were properly joined under Federal Rule
of Civil Procedure 20(a)(2), and that mass
joinder-"swarm joinder" as it is called in the
BitTorrent-defendant context-better serves the economic and
efficiency interests of the parties and the
court.[3] After a full review of the report and
recommendation, and LHF's objection and exhibits, and an
exhaustive review of the case law, I agree with the
magistrate judge's recommendation and overrule LHF's
objection.[4]

LHF
also moves for default judgment against the remaining
defendants, requesting $15, 000 in statutory damages, $7, 550
in attorney's fees and costs, and a permanent injunction
against each defendant. I deny the motion as moot in part
because I sever and dismiss all but one of the defendants
from this case, but I grant the motion against un-severed
defendant Boughton.

Background

These
copyright-infringement swarm-joinder cases against users of
BitTorrent software have significantly increased in
popularity nationwide in the past five years with some
plaintiffs filing against thousands of defendants in a single
action, [5] other plaintiffs filing against defendants
in groups of roughly 10-100[6], and at least one plaintiff
filing over one thousand cases against individual
defendants.[7] The defendants are discovered and targeted
by their internet provider (IP) addresses, which register on
the BitTorrent tracker when they download the plaintiffs
film. Safety Point Products, LLC v. Does describes
the BitTorrent protocol well:

BitTorrent is a program that enables users to share files via
the internet. Unlike other "peer-to-peer" (P2P)
file sharing networks that transfer files between users or
between a user and a central computer server, BitTorrent
allows for decentralized file sharing between individual
users who exchange small segments of a file between one
another until the entire file has been downloaded by each
user. Each user that either uploads or downloads a file
segment is known as a "peer.' Peers that have the
entire file are known as "seeds.' Other peers, known
as "leeches" can simultaneously download and upload
the pieces of the shared file until they have downloaded the
entire file to become seeds.

Groups of peers that download and upload the same file during
a given period are known as a "swarm, " with each
peer being identified by a unique series of alphanumeric
characters known as "hashtag' that is attached to
each piece of the file. The swarm's members are
relatively anonymous, as eachparticipant is identifiable only
by her Internet Provider (IP) address. Overseeing and
coordinating the entire process is a computer or server known
as a "tracker" that maintains a record of which
peers in a swarm have which files at a given time. In order
to increase the likelihood of a successful download, any
portion of the file downloaded by a peer is available to
subsequent peers in the swarm so long as the peer remains
online.

But BitTorrent is not one large monolith. BitTorrent is a
computer protocol, used by various software programs known as
'clients" to engage in electronic file-sharing.
Clients are software programs that connect peers to one
another and distributes data among the peers. But a
peer's involvement in a swarm does not end with a
successful download. Instead, the BitTorrent client
distributes data until the peer manually disconnects from the
swarm. It is only then that a given peer no longer
participates in a given BitTorrent swarm.[8]

LHF
alleges that its film has been pirated by BitTorrent users
79, 404, 331 times worldwide, 16, 799, 795 times in the
United States, and 113, 962 times in Nevada.[9] Of those 113, 962
alleged infringers, LHF identified the 1-2% most egregious
offenders and filed suit against them in sets of 10-30 Does
per case.[10]Once those 10-30 Does in each case are
identified, LHF somehow narrows them down even further to 10
or fewer, and then, allegedly, to the extent that any
defendant raises a distinct defense or cause of action, that
defendant would be severed into a separate cause of
action.[11] LHF claims that this process "is
designed to impose the least expense on all parties
involved-including the Court."[12] LHF brought this
particular case against 18 initially unidentified defendants.
After learning their identities, LHF amended its complaint
against 11 named defendants, and then LHF proceeded to
dismiss them from the case.[13] Only five defendants now
remain: Derrick Boughton, Jose Gallego, Tom Gyarfas, Daniell
Templeton, and Kristina Walsh.

Discussion

A.
Standard of review

When a
party objects to a magistrate judge's findings and
recommendations, a district court judge must "make a de
novo determination of those portions of the report or
specified proposed findings or recommendations to which
objection is made."[14] The district court judge "may
accept, reject, or modify in whole or in part, the findings
or recommendations made by the
magistrate."[15]

B. The
swarm-joinder split of authority

Joining
multiple John/Jane Doe participants in a BitTorrent swarm
into a single action is commonly referred to as "swarm
joinder."[16] Because the defendants are initially
unidentified, the plaintiff files an ex parte motion for
expedited discovery to subpoena internet service providers
(ISPs) for the names and addresses of defendants associated
with specified IP addresses. The motion raises two issues:
(1) whether the defendants are properly joined; and (2)
whether the court should permit the expedited
discovery.[17] "Courts have dealt with the issue
in several ways:denying the discovery requests,
severing all but the first Doe defendants, delaying the
severance decision until after the Does have been identified,
or approving both joinder and pre-service
discovery."[18]

The
procedural posture of this case tracks the
delay-severance-decision option. Magistrate Judge Koppe
granted LHFs expedited discovery requests, [19] and then she
ordered LHF to show cause why the identified defendants
shouldn't be severed from the first defendant and
dismissed in each of its cases.[20] Judge Koppe, after
conducting her own extensive research on swarm joinder,
ultimately recommended that I sever and dismiss from this
case the claims against all defendants except defendant
Boughton.[21] LHF objected to that recommendation, so
I now determine whether the defendants were properly joined
and whether severance is appropriate.

There
is a major split of authority on this issue. Only one circuit
court-the D.C. Circuit-has ruled on the issue, finding that
swarm joinder does not satisfy FRCP 20(a)(2) because the
defendants' use of the same BitTorrent protocol to
download the same file does not arise out of the same
transaction or occurrence.[22]The district courts in every
other circuit and even the judges within some districts
widely disagree on whether to permit swarm joinder. Some
courts hold that swarm joinder is appropriate under FRCP
20(a)(2).[23] Other courts hold as the D.C. Circuit
does.[24] And still others exercise their
discretion to manage their dockets and sever the defendants
even if swarm joinder would technically be permissible under
the FRCP because other factors outweigh the benefits
conferred by joinder judicial economy, the high burden on the
defendants, the risk of inappropriate settlement leverage,
and filing-fee evasion.[25] The Ninth Circuit has not yet decided
the issue, so I am not bound by any authority.

My
exhaustive research on the issue uncovered no clear majority
rule. The D.C. Circuit is the only circuit court to have
addressed the issue (it doesn't allow swarm joinder),
[26]
5 districts permit swarm joinder under Rule 20(a)(2),
[27]12 districts do not, [28]18 districts
have judges on both sides of the debate, [29] and the
remaining 58 districts have not addressed the issue. Within
the Ninth Circuit alone, the District of Arizona,
[30]
the Central District of California, and the District of
Oregon do not allow swarm joinder. The Eastern and Western
Districts of Washington both permit swarm joinder under Rule
20. The Eastern, Northern, and Southern Districts of
California have judges on both sides of the fence. And the
Districts of Alaska, Hawaii, [31] Idaho, Montana, and Nevada
have not yet addressed the issue. The only thing that is
firmly established about this issue is that there is no
uniform protocol.

I do
not decide today whether the defendants' actions were
part of the same transaction or occurrence to satisfy Rule
20(a)(2). Even if Rule 20(a)(2) were satisfied, I would still
exercise my discretion under Rule 21[32] and sever all defendants
except the first one, Derrick Boughton, because joining them
causes more harm than good.[33]

I find
most persuasive Magistrate Judge Sorokin's analysis on
the issue and his conclusion that swarm joinder is not likely
to promote judicial efficiency.[34] As Judge Sorokin opined,
"the claims against each defendant are likely to turn on
individual defenses (e.g., 'my wireless internet service
is not password protected, ' 'I didn't watch it,
my adolescent child did, ' or 'that is not my IP
address'), and each will require a separate
'mini-trial.'"[35] "Joinder would transform
an otherwise straightforward case into a logistical
nightmare. For example, each defendant would be required to
serve any motion or other submission on the .. . other
defendants, and all. .. defendants would have a right to be
present at any deposition or court
proceeding."[36] "If consolidation of certain
pretrial proceedings were deemed appropriate, it could be
accomplished via Rule 42(a), after the institution of
individual actions against each
defendant."[37] Finally, severance prevents
inappropriate settlement leverage and filing-fee
evasion.[38]

LHF
argues that the defendants would benefit from swarm joinder
because they could pool their resources and share in one
another's defenses, representation, and other strategies,
and if any defendant had a unique defense then LHF would move
to sever that defendant into a separate case. I find that
those benefits to the defendants do not outweigh the
potential burdens imposed on them considering the varied and
extensive motion practice that is typical of contemporary
litigation, the scheduling conflicts that would inevitably
arise when deposing each party, and the likelihood of
confusing the issues and parties should the action proceed to
trial.

LHF
also argues that prohibiting swarm joinder would make
copyright enforcement too costly and allow BitTorrent users
to continue their infringing activities undeterred and cause
"substantial damage to the entertainment industry and
our economy as a whole. It would essentially serve as an
abdication of judicial authority from the Court-a move that
would compromise the rule of law and fly in the face of two
centuries of jurisprudence."[39] I don't share this
apocalyptic prophecy, and LHF's own objection belies its
position.

LHF
mentions that prohibiting swarm joinder would "likely
increase the final dollar amount of judgment awards entered
against individual [d]efendants."[40]Those
"likely" higher judgment awards would surely offset
LHF's concern that individual cases would be too costly
to file. The copyright-enforcement business model that LHF
and many other plaintiffs in these swarm-joinder cases
follow[41]imposes a greater burden on the courts
and defendants than the burden imposed on the plaintiff by
severance. Courts have held that cost effectiveness is not
sufficient to justify swarm joinder.[42] To borrow the sentiment
expressed by the court in On The Cheap, LLC v. Does
1-5011, 1 do "not condone copyright infringement
and [I do] encourage D settlement of genuine disputes.
However, [LHF]'s desire to enforce its copyright in what
it asserts is a cost-effective manner does not justify
perverting the joinder rules to first create .. . management
and logistical problems . . . and then offer to settle with
Doe defendants so that they can avoid digging themselves out
of the morass [that LHF] is creating."[43] So I adopt
Judge Koppe's recommendation to sever and dismiss all
defendants except for Derrick Boughton from this case without
prejudice to LHF's ability to refile separate lawsuits
against them.

C.
Motion for default judgment

LHF
also moves for default judgment against defendants Boughton,
Gallego, Gyarfas, Templeton, and Walsh. Because I sever and
dismiss the claims against Gallego, Gyarfas, Templeton, and
Walsh from this action for improper joinder, the motion is
moot against them, and I deny it. I now address the motion as
it pertains to defendant Boughton.

1.
Background

After
identifying Boughton, LHF sent a demand letter informing
Boughton of this case and his potential
liability.[44] Boughton did not respond, so LHF sent
him a second demand letter approximately three weeks
later.[45] LHF filed its first-amended complaint
three weeks after that and sent Boughton a third demand
letter.[46] Despite adequate service of process,
Boughton did not respond to the first-amended complaint or
demand letter.[47] The Clerk of Court entered default
against Boughton on May 8, 2017.[48] LHF now moves for default
judgment, requesting $15, 000 in statutory damages, $6, 570
in attorney's fees and costs, and a permanent injunction
to prohibit Boughton from further infringing its copyright
directly or indirectly.[49]

2.
Default-judgment standard

Federal
Rule of Civil Procedure 55(b)(2) permits a plaintiff to
obtain default judgment if the clerk previously entered
default based on a defendant's failure to defend. After
entry of default, the complaint's factual allegations are
taken as true, except those relating to
damages.[50] "[N]ecessary facts not contained in
the pleadings, and claims [that] are legally insufficient,
are not established by default."[51] The court has
the power to require a plaintiff to provide additional proof
of facts or damages in order to ensure that the requested
relief is appropriate.[52] Whether to grant a motion for default
judgment lies within my discretion, [53] which is guided by the
seven factors outlined by the Ninth Circuit in Eitel v.
McCool'-

(1) the possibility of prejudice to the plaintiff;

(2) the merits of plaintiffs substantive claim;

(3) sufficiency of the complaint;

(4) the sum of money at stake in the action;

(5) the possibility of a dispute concerning material facts;

(6) whether the default was due to excusable neglect; and

(7) the strong policy underlying the Federal Rules of Civil
Procedure favoring decisions on the merits.[54]

A
default judgment is generally disfavored because
"[c]ases should be decided upon their merits whenever
reasonably possible."[55]

3.
Evaluating the Eitel factors

a.
Possibility of prejudice to LHF

The
first Eitel factor weighs in favor of granting
default judgment against Boughton. LHF sent Boughton numerous
demand letters and a summons along with the first-amended
complaint, but Boughton never responded. LHF claims that
Boughton infringed its copyright by downloading its film
using BitTorrent software. Given the nature of BitTorrent
software, Boughton may be exacerbating LHFs injury by seeding
the file to the BitTorrent swarm.

b.
Substan tive merits and sufficiency of the claims

The
second and third Eitel factors require LHF to
demonstrate that it has stated a claim on which it may
recover.[56] The first-amended complaint sufficiently
pleads LHFs direct-copyright-infringement,
contributory-copyright-infringement, and vicarious-liability
claims.

To
present a prima facie case of direct infringement, LHF must
show that: (1) it owns the allegedly infringed material, and
(2) the alleged infringers violate at least one exclusive
right granted to copyright holders under 17 U.S.C. §
106.[57] LHF alleges that it is the owner of the
copyright registration for the film "London Has
Fallen."[58] LHF also alleges that Boughton willfully
violated several exclusive rights granted by 17 U.S.C. §
106, and that those violations caused it to suffer
damages.[59]

The
contributory-copyright-infringement claim requires LHF to
allege that Boughton "had knowledge of the infringing
activity" and "induce[d], cause[d, ] or materially
contribute[d] to the infringing conduct of
another."[60] "Put differently, liability exists
if the defendant engages in personal conduct that encourages
or assists the infringement."[61] Given the nature of
BitTorrent technology, BitTorrent- swarm participants who
download files compulsorily upload those same files so that
other participants may download them at a faster rate.
Accordingly, LHFs allegation that each defendant is a
contributory copyright infringer because they
participated in a BitTorrent swarm[62] is sufficient to satisfy
the induced-caused-or-contributed requirement. LHF satisfies
the remaining requirements by alleging that each defendant
knew or should have known that other BitTorrent-swarm
participants were directly infringing on LHFs copyright by
downloading the files that they each uploaded.[63]

LHF
also claims that each defendant, as the account holder for
the Internet service, is vicariously liable for any
infringing activity conducted by other users on its Internet
connection.[64] "Vicarious infringement is a
concept related to, but distinct from, contributory
infringement."[65] "To state a claim for vicarious
copyright infringement, [LHF] must allege that [Boughton] had
(1) the right and ability to supervise the infringing conduct
and (2) a direct financial interest in the infringing
activity."[66]

LHFs
allegations satisfy the first prong of the
vicarious-infringement test. As the court discussed in
Dallas Buyers Club, LLC v. Doughty, "the
Internet service account holder, appea[rs] to have had
exclusive control over use of the Internet service" and
the account holder "could have simply secured access to
the Internet by creating a password or by changing an already
existing password."[67] "Thus, .. . [the account holder]
had the capacity to terminate use of his Internet service by
any infringing third party if he believed it was being used
to violate applicable law."[68]

LHF
also satisfies the direct-financiaHnterest prong. "The
essential aspect of the direct financial benefit inquiry is
whether there is a causal relationship between the infringing
activity and any financial benefit a defendant reaps,
regardless of how substantial the benefit is in proportion to
a defendant's overall profits."[69]
"Financial benefit exists where the availability of
infringing material acts as a 'draw' for
customers."[70] "The size of the 'draw'
relative to a defendant's overall business is immaterial.
A defendant receives a 'direct financial benefit'
from a third-party infringement so long as the infringement
of third parties acts as a 'draw' for customers
'regardless of how substantial the benefit is in
proportion to a defendant's overall
profits."'[71] LHF alleges that Boughton benefitted
from third-party infringement by viewing "London Has
Fallen" without paying for it.[72] The law is clear that it
doesn't matter how large the financial benefit
is: by watching the BitTorrent-downloaded film,
Boughton saved the cost of a movie ticket, and that is a
direct financial benefit.

I
therefore find that LHF sufficiently pled each of its claims
in the first-' amended complaint. I also find that LHFs
claims have substantive merit, ...

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